Thursday, February 22, 2007

Take a look at this rather hilarious exchange from a House Financial Services Committee hearing with Chairman of the Federal Reserve Board, Ben Bernanke. Basically, Rep. Roskam asks him what the Federal Reserve Board does. Now I know there is no such thing as a stupid question, but one would expect an elected Congressman to have a basic knowledge of this sort of thing. Remember, he has a full staff and is on the Financial Services Committee! Its amazing he wasn’t laughed out of the hearing. I wish I could get a video of this so I could see the look on Bernanke’s face as he was answering. I also wonder what the more than 60,000 professionals working in finance in the Sixth District would think of the fact their elected Representative sitting on the Financial Services Committee actually had to ask the Chairman what the Federal Reserve Board does.

REP. PETER ROSKAM (R-IL): Thank you, Mr. Chairman.Mr. Chairman, I'm a new member of Congress and a new member of the committee, and I have appreciated the detailed questions that my colleagues have asked.

I guess I would ask a broader question, and that is, you know, it seems to me that economic strength and weakness, success and failure, is mysterious in a lot of ways. And it's difficult for somebody outside of this arena to gaze in and really discern all the factors that go into a good successful mix. And I know there's really nobody that can do that.

But for purposes of this committee and future committees that have this responsibility of oversight for you, Mr. Chairman, and the Fed, what are the things that you're responsible for? What are the tools that you have at your disposal? And could you sort of -- and maybe, in an Econ 101 sort of fashion in the remaining four minutes, just break that down and say, "Look, these are the things that we frankly have no influence over but are just off the table." I think that would help me and maybe some other members of the committee in the future.

MR. BERNANKE: Well, the Federal Reserve has multiple responsibilities. The one that's best known is our responsibility for monetary policy, which we use to pursue the congressional mandate of price stability and maximum sustainable employment.

It's important that the Federal Reserve be independent and be able to make independent decisions about interest rates in order to preserve the credibility of the central bank. However, it is also important that Congress exert oversight over the Federal Reserve to make sure that we are following our stated mission and that we are pursuing coherent and rational plans.

The other areas include banking, where we are involved in developing the new capital (accord ?), providing various guidances and regulations together with the other banking agencies. And there we are more like the other agencies in terms of the kinds of responsibilities we have.

We have considerable responsibility in the consumer protection area -- that's come up a lot today -- for various regulations that provide disclosures to consumers on credit cards, on mortgages, and that provide some tools to address predatory lending or high-cost lending. And there we are -- like other agencies, we are given instruction by the Congress, by the law, in terms of what the Congress wants us to achieve and with what instruments. And then it's our job to implement the regulations that will most effectively accomplish Congress's goals.

So we have a range of activities, all of which fall under the oversight of Congress, obviously.